- German software giant outstrips forecasts
- Backlog strength a standout amid softening demand elsewhere
- Stock jumps 6% to strike new record high
Friday’s (19 Jul) massive IT outage may have caused worldwide havoc yet there is little sign that it will change the trajectory of enterprises embracing cloud computing, with all its associated benefits – if anything, adoption is becoming faster and more widespread.
That is certainly the impression investors are getting from SAP (SAP:ETR), the German, and Europe’s largest software giant. The €238 billion company posted second quarter to end June results that topped estimates as its cloud business was boosted by growing enterprise demand for its AI (artificial intelligence) solutions.
Shares in the business rallied more than 6% in morning trading, hitting a record €195.26. Pre-market data for its Wall Street listed stock has the shares also breaking the ceiling, primed to open at above $213, having closed above the $200 mark for the first time late last month.
WHAT DO THE NUMBERS LOOK LIKE?
For the three months to 30 June 2024, SAP reported adjusted earnings of €1.10 per share on revenue of €8.29 billion, compared with estimates for €1.09 on €8.26 billion revenue.
The beat was fuelled by cloud growth momentum, which ‘remained strong in Q2, with Business AI enabling many deals’, the company said.
Cloud and software revenue jumped 10% to €7.17 billion in Q2 year-on-year and the software maker continues to win new business, boosting its current order book.
SAP’s cloud backlog jumped 28% to €14.8 billion, implying significant new orders from new and existing clients.
‘SAP’s cloud backlog growth in Q2 2024… shows that the company’s cloud migration growth tailwinds remain healthy and robust’, said analysts at investment bank Berenberg in a note to clients.
BACKLOG STANDS OUT FROM CROWD
That’s despite many peers reporting demand softness. Berenberg reckons SAP is the sole large cap enterprise software business to demonstrate resilience in its backlog growth rates in 2024.
‘The current cloud backlog suggests a stable buying environment, which will be interesting to compare to the likes of Workday (WDAY:NASDAQ) (22 Aug) and ServiceNow (NOW:NYSE) (24 Jul) when they report’, added Megabuyte’s Nathan Jackson.
Berenberg sees SAP’s near-term future being robust. ‘We anticipate SAP’s cloud migration momentum to accelerate going forward and, as such, we believe the group will be one of the most resilient software names in the second half of the year.’
Looking ahead, the tech company reiterated its outlook for the full year, forecasting adjusted operating profit between €7.6 billion and €7.9 billion on cloud revenue in a range of €17 billion to €17.3 billion.
Time will tell if the Crowdstrike (CRWD:NASDAQ) / Microsoft (MSFT:NASDAQ) Azure outage will impact the enterprise’s appetite for cloud computing down the line.
